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Effect of corporate diversification on financial performance of manufacturing firms in rwanda: a case study of selected manufacturing firms

Author:

Florence Mukamana and Dr. Patrick Mulyungi

Subject Area:

Life Sciences

Abstract:

The operating environment for business has become very volatile and dynamic following increased innovation and globalization. This has meant that organizations have to constantly be ready to develop and implement new strategies that would boost their competitiveness. Diversification is developing as one of the most important growth strategies adopted by firms to boost performance. Some firms that have adopted diversification strategies have succeeded while others have failed. The study sought to determine the effect of corporate diversification on the financial performance of manufacturing firms in Rwanda. To achieve this objective the study used a descriptive survey. A census approach was used, and secondary data was used for five years (2012-2016). The data was gathered from financial statements and records. Data analysis was done using a regression model. The study found that corporate diversification was positively related to financial performance of 15 selected manufacturing firms in Rwanda. Data analysis was done using a regression model. The study found that corporate diversification was positively related to financial performance of the manufacturing firms in Rwanda. Growth and firm size were found to be negatively related to financial performance of manufacturing firms. The correlation results were found to be weak but moderate between corporate diversification and financial performance of manufacturing firm. From the descriptive results, it was found that a few selected manufacturing firms had diversified their products. The mean value of the selected manufacturing firms that had diversified their products was 0.0209. This mean value shows that the level of corporate diversification is moderate. Firm size and financial performance was found to have a weak positive relationship which was represented by R= -.354. There was no relationship between growth of the firm and financial performance of manufacturing firms. From the model of coefficients, corporate diversification was found to be statistically significant in the model. This is because its p-value was lower than 5%. The results were as follows p=0.004. These finding are consistent with the hypothesis of the study which predicts a positive relationship between corporate diversification and financial performance of the selected manufacturing firms in Rwanda. Further, it was observed that firm size and growth of listed manufacturing firms were statistically insignificant. The results obtained were as follows p=0.007 and p=0.094. The study recommends that firms should offset the risk of doing business. Through expanding, a firm is not dependent on a limited number of products, locations, or markets in order to survive. A company may pursue this diversification in reaction to a change in the market. The study was conducted within a limited time and scope. The results and the conclusion drawn in this study cannot however, be used to make generalization of all the manufacturing firms operating in Rwanda.